Report
Valens Research

AAL - Valens Credit Report - 2021 06 14

Credit markets are grossly overstating credit risk with a YTW of 6.023% and CDS of 627bps relative to an Intrinsic YTW of 2.633% and Intrinsic CDS of 185bps. Furthermore, Moody's is overstating AAL's fundamental credit risk with its B2 credit rating four notches lower than Valens' XO- (Ba1) credit rating

Incentives Dictate Behavior™ analysis highlights favorable signals for credit holders. Management's compensation framework should focus management on all three value drivers: asset efficiency, margins, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available to service obligations. Additionally, management has low change-in-control compensation, indicating they may not be incentivized to seek a sale or accept a buyout of the company, reducing event risk. Moreover, most management members are material owners of AAL equity, indicating they may be well-aligned with shareholders for long-term value creation

Earnings Call Forensics™ analysis of the Q1 2021 earnings call (4/22) highlights that management is confident they are starting to see signs of a strong economic recovery and that they will pay down debt once they see sustainable cash generation. They are also confident they will do more to reach their goal of net-zero carbon emissions by 2050 and that they are taking the right steps to mitigate 737 MAX concerns
Underlying
American Airlines Group Inc.

American Airlines Group is a holding company. Through its subsidiaries, the company's business activity is the operation of a primary network carrier, providing scheduled air transportation for passengers and cargo. The company's regional carriers provide scheduled air transportation under American Eagle. The American Eagle carriers include the company's regional carriers Envoy Aviation Group Inc., PSA Airlines, Inc. and Piedmont Airlines, Inc., as well as third-party regional carriers including Republic Airline Inc., Mesa Airlines, Inc., SkyWest Airlines, Inc. and Compass Airlines, LLC. The company's cargo division provides freight and mail services, with facilities and interline connections available across the globe.

Provider
Valens Research
Valens Research

In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:

  • GAAP and IFRS have failed to provide rules for reliable financial statement reporting
  • Stock analyst recommendations are not grounded in disciplined financial analysis
  • Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
  • Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available

We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.

  • Corporate credit ratings remain years behind the fundamental underpinnings of company performance
  • Stock analysts continue to make recommendations with deeply inherent biases
  • Research firms have failed to break down the walls between credit, equity, and macroeconomic research
  • The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming

The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.

Analysts
Valens Research

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